For all those individuals who have used their credit wisely and kept up with making their payments on time, you would think that credit card issuers would be more apt to reward their customers with lower rates, better terms and more attractive features. Instead, it appears that card issuers are finding loopholes before the new law takes effect to fill the gap.

Credit card issuers have leveraged the use of frequent flyer miles programs, cash-back rewards and other perks to entice customers into using their card products.  The new legislation will limit the ability of card issuers to make those easy, high interest rate card offers to riskier or less than qualified borrowers.  Making up the short-fall, it appears, will come from a notable source …. their most credit-worthy and reliable customers.

How Will Card Issuers Make It Up?

Amidst the falling revenues (in billions of dollars) that card issuers are facing and with the sharp restrictions of the pending legislation that will go into effect in early 2010, card issuers are looking to regain those losses from their current, good paying customers.

The “loopholes” that the card issuers are using include the following:

• Cutting back or curtailing the amount of “cash-back” offers they make available to consumers.
• Reviving much higher annual fees
• Charging interest immediately on purchases that they use to offer a 25 or 30 day grace periods.

With the threat of the new legislation dramatically affecting their bottom-line profits (which have been taking a beating) during the economic downturn, card issuers will be looking to their only source of hope to make up the lost ground in their good paying customers to make up for billions of dollars in lost revenue.

According to Edward L. Young, CEO of the American Bankers Association, he said that “It will be different business”, and that “those that manage their credit well will in some degree subsidize those that have credit problems”.

WOW! What a chilling admission of where things are headed with the industry.

How Can They Get Away With It?

Well it may come as a surprise to know that the new legislation does not specifically forbid credit card companies from hiking their rates. This is another loophole for them.

Card industry expert, Robert Hammer commenting about the reality that card issuers face.  “They aren’t charities. They have shareholders to report to,” and banks and credit card companies will do “whatever is left in the model to work from, they will start to maneuver.”   Sound familiar? That’s the attitude that culminated in the sub-prime mess.

The recent economic upheaval has decimated the old formula of lending and extending credit to more riskier borrowers which brought billions of dollars of revenue and profits to these companies in the past.  They are now faced with an uncertain future and will need to adapt to the new environment in order to find creative ways to make up for lost profits.

According to recent news reports some of the big issuers such as Bank of America, Citigroup, American Express and others, are already raising rates across the board.  Incidentally, an interest rate cap was not part of the new legislation.

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